Investment as the key to recovery in the euro area? CEPS Policy Brief No. 326, 18 November 2014

Investment has declined in the euro area since the start of the economic and financial crisis, but this does not mean that there is necessarily an ‘investment gap’, explains Daniel Gros in this CEPS Policy Brief. Investment was probably above a sustainable level due to the credit boom before 2007. Moreover, the fall in the euro area’s potential growth − due to a combination of a sharp demographic slowdown and lower total factor productivity (TFP) growth − should also lead to a permanently lower investment rate. Increasing the investment rate might thus be the wrong target for economic policy. The author advises that the aim of economic policy should be to increase consumption, rather than investment overall. Increasing infrastructure investment might be justified in some member countries, but it is not a ‘free lunch’ when efficiency levels are low, which seems to be the case in some of the financially stressed euro area countries.

Household Final Consumption in the EU: The key driver for a sustainable recovery? ECRI Commentary No. 18, 4 December 2015

This commentary finds that after four to five years of poor performance, final consumption of households is expected to recover significantly in 2015 and 2016. This is all the more important since final consumption of households was the main driver of economic growth during the 12 years preceding the financial crisis. Some obstacles still stand in the way, however, preventing a sustainable recovery in private consumption.